The Tax System Explained in Lunch

Suppose that every day, ten men go out for lunch and the bill for all ten comes to $100.

If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.

The fifth would pay $1.

The sixth would pay $3.

The seventh would pay $7.

The eighth would pay $12.

The ninth would pay $18.

The tenth man (the richest) would pay $59.

So, that's what they decided to do.

The ten men ate lunch in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily lunch by $20.00." So lunch for the ten men would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still eat for free. But what about the other six men? How could they divide the $20 windfall so that everyone would get his fair share?

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to eat his lunch.

So the bar owner suggested that it would be fair to reduce each man's bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% off).

The sixth now paid $2 instead of $3 (33% off).

The seventh now paid $5 instead of $7 (28% off).

The eighth now paid $9 instead of $12 (25% off).

The ninth now paid $14 instead of $18 (22% off).

The tenth now paid $49 instead of $59 (16% off).

Each of the six was better off than before. And the first four continued to eat lunch for free. But, once outside the bar, the men began to compare the amount they got off.

The sixth man said, "I only got $1 off out of the $20 while the tenth man got $10 off!"

"That's true!" shouted the seventh man. "Why should he get $10 off, when I got only $2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!"

The nine men surrounded the tenth and told him they they were angry that he got so much off while they each got very little.

The next day the tenth man didn't show up for lunch, so the nine sat down and had their lunchs without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money amongst all of them for even half of the bill!

And that is how our tax system works. The people who already pay the highest taxes will naturally get the largest benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start eating overseas, where the atmosphere is somewhat friendlier.

For those who understand, no explanation is needed.

For those who do not understand, no explanation is possible.

User Comments:

Seth - Dec 18, 2011 11:46:30  This analogy overlooks one parallel. The bottom 3 of 4 wage earners get money directly from the top producers. Something like "earned income credit?" Look at the tax forms. There are people who not only don't pay taxes, but get a check larger than their withholding.

Jonas - Dec 18, 2011 11:58:57  Yes, you are absolutely right! I helped a friend prepare her taxes last year. She sent the IRS a $70 check, but received a $400 refund check in return, well over the amount withheld. In her case, she had only worked part-time, but considering the millions of people in this boat, it ...more

taxable kickbacks - Apr 10, 2013 04:19:31  The IRS should tax frequent flyer miles and other affinity programs. Any politician that has signed up to any affinity program should be obligated to abstain from voting and/or lobbying.

The U.S. government has ten times more revenue than it needs. Congress needs to STOP taxing us more. T ...more

Joan - May 28, 2014 05:53:37  I wish all people could see and understand this princepal. Iam sick of the those and us attitude. The rich get richer and the poor get poorer

Juno - May 28, 2014 09:07:18  This is Brilliant, Max. It's amazing how your points come across so effortlessly. If anyone else wrote this, no one would get it. Really a great piece!

Jonas - May 29, 2014 12:42:36  Thanks for visiting and for the comment, Joan. But don't forget that without pain, we wouldn't know what pleasure is. Without hatred, we wouldn't know what love is. Without bad, we wouldn't know what good is. And without them, we wouldn't know who we are. But I have to ...more

Cathie - Apr 28, 2016 06:49:13  Joan, let me guess. You are in the poorer faction of the population? Check out Obamacare... The reason it's not working is there are not enough people paying high enough premiums to pay for the medical care of the people utilizing the program. It will never work actually. The ratios of payers to ...more

Tax Prof - Oct 15, 2016 10:41:09  An interesting point here is that even with a reduction in the bill, everyone gets upset. What happens when the owner raises his prices so the lunch costs $120?

Is the lunch worth $2? If yes, great!
Is the lunch worth $49? If no, apologize to your friends, excuse yourself, and go somewhere else.

Dave - Nov 11, 2016 10:58:00  Meanwhile the poorest four go home to their trailers, apartments, or are homeless. the next group goes home to their modest home in the suburbs. One may go home to their luxury home or condominium. And the 10th gets in his Leer Jet and flies to Bermuda for the evening and complains about paying high ...more

Janet - Jan 30, 2017 08:48:19  I think this perfectly sums up the problem. I am amazed at the people who feel they are entitled to receive money the have not worked for nor even desire to try and earn. As a single parent I was often told I should quit my job and go on welfare. This was said to me by teacheers, a lot of other pare ...more

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